Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income
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I hope to get pleasure from a snug retirement by producing a six-figure second revenue from a portfolio of FTSE 100 dividend shares.
Now appears to be like like an excellent time to purchase them, as many are actually low cost whereas providing inflation-busting yields. With luck, I would even bag some capital progress as soon as the worldwide economic system recovers and market sentiment rebounds.
I ramped up my technique a 12 months in the past, when the FTSE 100 was sliding to round 7,250. This appeared like an excellent alternative to choose up cut price shares, after they have been out of favour and subsequently low cost.
FTSE 100 worth
In the present day, with the FTSE 100 round 1,000 factors greater at 8,317, I’m glad I took the plunge.
I don’t count on huge dividend shares to shoot the lights out share-price-wise, however some have finished properly. My shares in housebuilder Taylor Wimpey (LSE: TW) are up 20.41%, since I began shopping for them final September. Over 12 months, they’re up 26.72%.
This determine doesn’t embody dividends. On 14 Could, Taylor Wimpey despatched me £158.78. That’s on high of the £79.84 I obtained on 17 November. In order that’s £238.62 in complete.
I’m hoping it can proceed to ship a gentle stream of dividends that rise over time. I’m inspired by the truth that it has maintained payouts though greater mortgage charges have hit property completion and costs.
Taylor Wimpey’s pre-tax earnings fell 42.8% to £473.8m in 2023, with income down 20% to £3.5bn. However nonetheless the share worth climbed, and the dividend got here by. The board lately reported a promising first quarter, so fingers crossed. When the primary rate of interest lower lands, I believe its share worth could soar once more.
So how do I flip dividends of only a few hundred kilos right into a £100k passive revenue, as recommended within the headline? It appears a giant leap.
Advantages of reinvesting dividends
First, Taylor Wimpey isn’t the one firm sending common chunks of cash with out me having to do something other than maintain its shares.
Final Wednesday, FTSE 100 insurer Phoenix Group Holdings despatched £137.24. The day earlier than that, Lloyds Banking Group paid me £172.09. On 15 Could, Simply Group handed me £36.55. I obtained £408.27 from wealth supervisor M&G on 9 Could.
I’ve reinvested each penny, which suggests I’m now holding extra of those corporations’ shares. They are going to hopefully generate additional dividends in future. I’ll reinvest these too. And probably obtain much more dividends in consequence. It’s essential to state that dividends aren’t assured. Nothing is when shopping for shares, however the potential rewards make the danger worthwhile.
Let’s say I make investments £10,000 a 12 months in an expansion of shares, and improve that by 5% a 12 months to maintain up with inflation. If I matched the FTSE 100 long-term complete return of 6.9% a 12 months, after 30 years I’d have £1,732,766.
If my portfolio yielded 6% a 12 months, as my present one does, I’d get revenue of £103,966. Inflation means it will likely be value much less in actual phrases than immediately, however it’s nonetheless a mighty return. Each time Taylor Wimpey and the remainder pay me a dividend, I’m a couple of hundred kilos nearer to my goal.